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Over a Barrel, Caribbean Seeks Finance for Clean Energy

Children in Georgetown, Guyana learn about solar energy during an exhibition. Credit: CREDP

PORT OF SPAIN, Trinidad, Jul 8 2013 (IPS) - When James Husbands, a 24-year-old Barbadian businessman, began weighing the possibility of manufacturing solar water heaters, there was already a prototype on the island that had been designed and installed by an Anglican priest living there in the early 1970s.

A market study on the viability of producing solar water heaters had been done by a local NGO. This study, coupled with the Barbados government’s imposition of import duties on the solar water heaters sold by an Australian company to the island, convinced James that the time was right to enter the field.

"Governments cannot promote what they do not understand and utilities do not promote what they are not supplying themselves." -- CREDP's Thomas Scheutzlich

Husbands, now managing director of Solar Dynamics, told the IPS that government support in the late 1970s was crucial to the success of his venture in the early days. Barbados currently has the fifth highest penetration worldwide of solar water heaters per thousand households.

Arnaldo Vieira de Carvalho, a specialist in the Energy Division of the Infrastructure and Environment Sector of the Inter-American Development Bank, told IPS that Latin America and the Caribbean use renewable energy (RE) in much greater proportion than any other region, although much of that is hydropower and biofuels. The use of wind and solar remain quite small.

IDB and its partners have sponsored a competition since 2009 for RE and Energy Efficiency projects in the Caribbean, the winners of which receive up to 100,000 dollars in financing and technical support. Eight winners were selected last year. The competition, IDEAS, has among its criteria that winners’ projects should benefit the poor, gender equity, and indigenous communities.

An added incentive to accelerate the slow pace of RE development, even though the region is not a major source of fossil fuel emissions, is the spate of devastating natural disasters over the past decade.

Ulric Trotz, deputy director and science adviser of the Caribbean Community Climate Change Centre (CCCCC), told IPS in an e-mail, “Extreme weather events (often associated with climate change) have caused significant damage to the region. For example, Hurricane Ivan in Grenada wiped out approximately 200 percent of her GDP in 2004. Similarly, a one in 100-year flood in Guyana in 2005 wiped out more than 60 percent of that country’s GDP in that year, moving it from a positive growth position to a negative real growth.”

Consequently, Caribbean governments have begun taking a more proactive approach to promoting the development of renewable energy, establishing an Energy Unit at the Caricom regional headquarters which works in conjunction with the CCCCC.

Trotz said promoting renewable energy is important, because “by diverting costs away from the importation of fossil fuels, [Caribbean] countries will have additional resources from the savings to put towards building resilience to the impacts of Climate Change and Climate Vulnerability.

“It is not just the conversion to renewable energy but energy efficiency” that the region is focusing on, he said.

He added that “pooling RE projects across the region might have a catalytic effect of encouraging investment as this may significantly lower transaction costs and make investment more attractive.”

The Caribbean, apart from Trinidad and Tobago, which is an oil producer, currently spends billions on the importation of fossil fuels every year. In May, while on a visit to Trinidad, U.S. Vice President Joe Biden made the point that energy costs in the region need to be lowered and the use of renewable energy increased.

“There’s probably no group of nations better situated to take advantage of renewable energy possibilities than here in the Caribbean. And we know that many Caribbean nations pay three times more for energy than we do in the United States of America…[We] are working together on this, looking to invest in connected regional grids to create economies of scale and renewable energy – economies of scale that are driven by renewable energy,” he said.

The region has also sought the assistance of European Union partners, and launched the Caribbean Renewable Energy Development Programme with the major objective of strengthening the ability of Caribbean countries to mobilise investors to make the shift from conventional energy investment to renewable energy investment.

According to Thomas Scheutzlich, principal advisor of the Caribbean Renewable Energy Program (CREDP) since 2003, lack of an enabling legal policy framework and lack of well-defined bankable project proposals have been major barriers to the development of RE projects in the Caribbean region.

Scheutzlich has overall responsibility for implementation of the CREDP programme on behalf of the German consultancy company Projekt-Consult GmbH, which is charged by the German Agency for International Cooperation (GIZ) with the implementation of CREDP. Germany is responsible for 80 percent of CREDP’s funding.

One problem is that many banks in the region are unsure of the economic soundness of RE ventures and are unable to judge the risks inherent in such new technology, Scheutzlich said. The lack of government guarantees also makes traditional banks reluctant to back such ventures.

However, regional and international banks such as the Inter-American Development Bank (IDB), the European Investment Bank, and the Caribbean Development Bank “are all looking for bankable energy projects and offer financing,” he said.

Scheutzlich added that, “There is still a widespread and general lack of understanding of the potential of indigenous energy sources and energy efficiency throughout the society. Subsequently, governments cannot promote what they do not understand and utilities do not promote what they are not supplying themselves.”

Utility companies in the region generally have universal monopoly over the generation, transmission, distribution, and sale of electricity. “This is their traditional business model and they will only divert from that model if it is economically attractive” for them to do so, he said.

But despite the slow pace in the Caribbean, during the last few years the energy landscape has been “positively changing with the change processes accelerating and gaining a certain dynamism, and this is exactly what CREDP wants to trigger.”

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